Billee Trustees Limited v ANZ National Bank Limited HC Auckland CIV 2009-404-8571

[2010] NZHC 945

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2009-404-008571

BETWEEN  BILLEE TRUSTEES LIMITED First Plaintiff

ANDROBERT WILLIAM GARVIN AND DAVID ROBERT LEE

Second Plaintiffs

ANDANZ NATIONAL BANK LIMITED Defendant

Hearing:         2 June 2010

Counsel:         GSG Erskine for plaintiffs

ITF Hikaka and SA Bonney for defendant

Judgment:      4 June 2010 at 2:30pm

INTERIM JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for security for costs]

This judgment was delivered by me on 4 June 2010 at 2:30pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Carter & Partners, PO Box 2137, Auckland for plaintiffs

LeeSalmonLong, PO Box 2026, Auckland for defendant

BILLEE TRUSTEES LTD V ANZ NATIONAL BANK LTD HC AK CIV 2009-404-008571  4 June 2010

The application

[1]      The defendant applies for an order for security for costs.  It seeks orders that:

a)        The plaintiffs gives security for the defendant’s costs in the sum of

$43,870 to be paid in two stages:

i)$14,470 payable immediately for steps up to and including discovery; and

ii)$29,400 payable on completion of discovery for steps in the proceeding up to and including the hearing or such other sums as the court orders;

b)That security be given by payment of that sum into the court or by giving, to the satisfaction of the Registrar, security for the sum claimed; and

c)        That the proceeding be stayed until the sum is paid or the security is given.

[2]      The application is made in reliance on r 5.45 of the High Court Rules.  The relevant parts of that rule for the purposes of this application are as follows:

5.45     Order for security of costs

(1)Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—

…

(b)that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff's proceeding.

(2)A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.

(3)      An order under subclause (2)—

(a)       requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient—

(i)       by paying that sum into court; or

(ii)      by giving,  to the satisfaction of the Judge or the

Registrar, security for that sum; and

(b)may stay the proceeding until the sum is paid or the security given.

The court’s approach to security for costs applications

[3]      In AS McLachlan Ltd v MEL Network Ltd[1] helpful guidance is given as to the approach  that  should  be  taken  on  applications  for  security  for  costs.    For  the purposes of this application the Court’s comments at [13], [14], [15] and [16] are particularly helpful, namely:

[1] AS McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA)

[13]Rule 60(1)(b) High Court Rules provides that where the Court is satisfied, on the application of a defendant, that there is reason to believe that the plaintiff will be unable to pay costs if unsuccessful, “the Court may, if it thinks fit in all the circumstances, order the giving of security for costs”. Whether or not to order security and, if so, the quantum are discretionary. They are matters for the Judge if he or she thinks fit in all the circumstances. The discretion is not to be fettered by constructing “principles” from the facts of previous cases.

[14]While  collections  of  authorities  such  as  that  in  the  judgment  of Master Williams in Nikau Holdings Ltd v BNZ (1992) 5 PRNZ 430, can be of assistance, they cannot substitute for a careful assessment of the circumstances of the particular case. It is not a matter of going through a checklist of so-called principles. That creates a risk that a factor accorded weight in a particular case will be given [752]disproportionate weight, or even treated as a requirement for the making or refusing of an order, in quite different circumstances.

[15]      The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken as contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has little chance of success. Access to the Courts for a genuine plaintiff is not lightly to be denied.

[16]Of course, the interests of defendants must also be weighed. They must be protected against being drawn into unjustified litigation,

particularly   where   it   is    over-complicated   and   unnecessarily protracted.

[4]      The reference in the Court of Appeal decision to r 60(1)(b) is a reference to the predecessor of the current rule which I have set out.

Background

[5]      In  2007  the  defendant  agreed  to  make  loans  to  the  first  plaintiff  on the security of a mortgage over a property at 27 Hall Street, Kihikihi in the Waikato. The loans were to be guaranteed by the second plaintiffs.

[6]      Two principal loans are pleaded.   The first relates to the purchase of the property at Kihikihi.  That loan agreement is dated 28 September 2007.  The second relates  to  the  development  of  that  property.    That  loan  agreement  is  dated  18

December 2007.  The plaintiffs purchased the property for subdivision as three lots. The plaintiffs purchased  houses for removal on to the property as part  of their development project.

[7]      By agreement dated 7 September 2007 the plaintiffs purchased a house for removal from a site at 90 Aurora Terrace, Hamilton.  In March 2008 the defendant claimed that it had an interest in the house.  The registered proprietor of the property on which the house sat is independent of the parties involved in this proceeding.  The defendant threatened the possibility of laying a complaint to the police and also pursuing injunction proceedings unless the house was restored.   The basis for the defendant’s claim was its allegation that it had a mortgage over the property to which the house was originally affixed.

[8]      The  plaintiffs  claim  that  the  defendant  dishonoured  the  first  plaintiff’s cheques which were drawdowns under the development loan.   As a result of the bank’s actions the plaintiffs claim that:

a)        The sale of one of the lots on the Kihikihi property was cancelled;

b)They were prevented by the defendant from carrying out the development;

c)        They were unable to refinance elsewhere;

d)       They were unable to pay the amounts due under the loan agreements;

and

e)       They have suffered loss, particularly loss of profits, and loss in value of the property.

[9]      The plaintiffs’ claims are particularised, in part, as follows:

a)       Judgment for the plaintiffs in respect of a claim not yet the subject of proceedings by the defendant against the plaintiff for $173,285.72;

b)A claim for $300,000 made up of a loss of profit claim of $180,000 and a loss in value of the property claim of $120,000; and

c)        Interest,  bank  charges,  fees  or  other  holding  costs  incurred  since

2 October 2008 and consequential costs including storage costs for the house.

[10]     The plaintiffs’ claim relies on four alternative causes of action:

a)       Whether the bank is liable for an unlawful claim to a chattel, being the house that was removed;

b)Whether the bank was in breach of contract, including implied terms of the loan agreements, including by not honouring the agreements and wrongfully relying on default provisions as a result of which it was carrying out a mortgagee sale;

c)       Whether the bank is liable for breach of confidence whereby it made unauthorised disclosure or use of information provided to it by the plaintiffs; and

d)Whether equitable reliance or estoppel applies whereby the plaintiffs, in taking steps to carry out the development project including entering into the loan agreements with the defendant and by the removal of the house, were entitled to rely on:

i)The  fact  that  the  bank  had  knowledge  of  the  purchase  for removal of the house prior to it granting finance approval;

ii)The  bank  not  having  raised  any  issue  with  such  house purchase beforehand, that is, prior to the development loan it would not do anything to stop the purchase.

As a consequence of the defendant’s action in relation to the house, the plaintiffs have suffered loss.

[11]     The defendant is currently undertaking steps to complete a mortgagee sale of the Kihikihi property.  The defendant maintains its position that the plaintiffs are in default and owe in excess of $182,421.  Although the figures are different this claim represents the same matter that is the subject of the prayer for relief which I have described in [9]a) of this judgment.

[12]     The defendant has filed a statement of defence and counterclaim.  It denies the plaintiffs’ claim.   It seeks damages for an alleged trespass.   The basis for that claim is that it says it has a first charge registered mortgage over the property at

90 Aurora Terrace, Hamilton.  It says that the house was a fixture on that property. It says that the plaintiffs had the house removed from the Aurora property to another site and that as a consequence it has suffered loss as a result of damage to its mortgage interest in the Aurora property.   The damages are not particularised. However, there is some evidence of the value of the house because the plaintiffs plead that they purchased the house from the house owner, either Mario Vesely or

Adelaide 89 Limited, for $35,000 inclusive of GST.  The defendant’s counterclaim makes no reference to the alleged indebtedness owing to it under the two loan agreements.  This is surprising in view of the first prayer for relief.  That, as I have recorded, seeks a judgment on the terms recorded in [9]a) of this judgment.

The threshold test

[13]     The first question that I must consider is whether there is, in the material before me, reason to believe that the plaintiffs will be unable to pay the costs of the defendant if the plaintiffs are unsuccessful in their claim.

[14]     The evidence placed before me establishes, in summary, the following:

a)       The first plaintiff is in default in respect of the two loans granted to it by the defendant.   Those two loans are guaranteed by the second plaintiffs;

b)        The  amount  outstanding  on  the  loans  at  26 February  2010  was

$182,421.25.  There was no evidence to suggest that that position has been improved since 26 February 2010;

c)        Property Law Act notices have been issued.    The defaults remain.

The defendant has instructed lawyers to exercise its power of sale over the property;

d)Mr Gavin admits, in his affidavit, that, to use his words “we are in a precarious financial circumstance”;

e)       Mr Lee admits to having difficulties in his employment as a real estate consultant and confirms that he has been unable to sell one property in nine months.  The defendant’s operation manager, who has given an affidavit in support of the application, has estimated that even after pursuing securities which it holds, Mr Lee’s shortfall to the defendant

in respect of other borrowings is in excess of $500,000.  That was not specifically challenged;

f)        Against the above material the plaintiffs refer to a bank deposit of

$18,000 and the interest in the house that was removed from Aurora Street, all of which, they say, indicates they have assets of $53,000 which would be available.

[15]     At  the  hearing,  Mr Erskine  did  not  press  the  position  that  I should  take account of the bank deposit of $18,000.  That, in short, is because those funds are attachable by the defendant in respect of the indebtedness in any event.

[16]     When I analyse the position I am driven to the conclusion that none of the plaintiffs would be able to be meet an award of costs should the claims not succeed. The position of the house does not alter this because if the plaintiffs fail, the indebtedness of something in excess of $182,421 will exist which, of course, substantially exceeds the value of the house.   Accordingly I conclude that the threshold has been met in this case.  It is therefore necessary to move to the second stage of the inquiry.   That requires a consideration of all the circumstances to determine whether it is appropriate to order security.   Necessarily it involves a consideration, as best one can on the limited material available, as to the merits of the claim.

The causes of action pleaded

[17]     Mr Erskine advised the court that the plaintiffs relied only on the fourth cause of action for the purposes of this security for costs application.  I have summarised the plaintiffs’ position in relation to that cause of action in [10]d) of this judgment.  I shall return shortly to consider it.

[18]     Mr Erskine’s  acknowledgement  that  only  the  fourth  cause  should   be considered is appropriate.  However, I shall make brief reference to the first, second and third causes of action.

[19]     I accept Mr Hikaka’s submission that, in respect of the first cause of action, the claim that the plaintiffs acted wrongly in allegedly asserting an interest in the house does not appear to be based on any statute, rule of common law or any legal principle.   There is no allegation of bad faith or malice.   Certainly, it would not support an opposition to an order for security for costs.

[20]     The second cause of action alleges that the defendant breached one or more of the loan agreements.  The defendant’s position, in essence, is that there was no breach of clause 13 of the loan agreements in this case.

[21]     In relation to the third cause of action the defendant’s position is that it is entitled to use confidential information where its own interests require disclosure. The defendant relies on Tournier v National Provincial & Union Bank of England.[2]

[2] Tournier v National Provincial & Union Bank of England [1924] 1 KB 461 CA.

[22]     That, then, is sufficient justification for Mr Erskine not relying on the second and third of the causes of action which I have summarised in [10] of this judgment.

[23]     I return to the fourth cause of action.  Mr Erskine submitted that the fourth cause of action pleads equitable estoppel.  He referred to the passage from Andrew Butler (ed) Equity and Trusts in New Zealand[3] as follows:

[3] Andrew Butler (ed) Equity and Trusts in New Zealand (2nd exemplary ed, Thomson Reuters, Wellington, 2009) at [19.2].

Although the modern approach is “to depart from strict criteria and to direct attention to overall unconscionable behaviour” it is nevertheless clear that the party alleging an estoppel must show that:

(a)A  belief  or  expectation  has  been  created  or  encouraged  through some action, representation, or omission to act by the party against whom the estoppel is alleged;

(b)The belief or expectation has been reasonably relied on by the party alleging the estoppel;

(c)       Detriment will be suffered if the belief or expectation is departed from; and

(d)It would be unconscionable for the party against whom the estoppel is alleged to depart from the belief or expectation.

[24]     Mr Erskine submitted that it is important for the plaintiffs to have full access to the defendant’s documents.  He drew attention to the fact that when this fixture was established by Associate Judge Christiansen in a minute issued on 16 March

2010 provision was made for the filing and service of affidavits of documents by

13 May 2010 and therefore well before the fixture for this case was allocated.   In particular, the requirement to file and serve the affidavit of documents and complete inspection was a step that had to be taken before the submissions for this application were to be filed and served.  I do not overlook the fact that Mr Hikaka pointed out that discovery was to be completed after the filing of the final affidavits in this application were directed to be made.   Be that as it may, what is important is the minute discloses that the Judge at the time clearly accepted that discovery should be completed before the security for costs application was determined.

[25]     The plaintiffs’ case, Mr Erskine submitted, in summary alleges as follows:

a)       The defendant knew at the time the development loan was granted that the development depended upon the acquisition of the house at

90 Aurora Terrace, Hamilton;

b)The defendant would have known that the owner of that house could not sell it to the plaintiffs without the defendant’s consent because of the defendant’s mortgage;

c)       By  granting  the  development  loan  the  defendant  did  not  draw attention to a potential problem over the house.   By not drawing attention to that problem the defendant had, in effect, encouraged the plaintiffs to proceed with their plan of development on the basis that the house purchase presented no problem and would simply proceed;

d)Because there had been a disclosure by the plaintiffs as to how the development was to proceed and, in particular, that it relied on the purchase of the house, the plaintiffs were entitled to rely on the fact that the defendant would not take action to stop the development proceeding by taking steps to stop the house purchase; and

e)       When the house purchase was effectively stopped, a sale of one of the lots in the development had to be cancelled that, in turn, triggered a chain reaction which led to a difficult financial position for the plaintiffs which ultimately led to their defaults under the mortgages.

[26]     Mr Erskine submitted that the summary that I have set out in fact justifies a cause of action based on equitable estoppel.   Where discovery is of particular importance is in determining the defendant’s precise knowledge of the particular house that was being purchased for the purpose of the development and other matters relating to the development.  Certainly the documents disclose that the purchase of the house was identified in the material that was submitted in support of the application for the development.  There is certainly a basis for the proposition that had that purchase not been effectively stopped there would have been a sale of one of the lots.   What the precise consequence of that might have been in terms of complying with the loan obligations is not completely clear to me on the material so far presented.   Having said that, I anticipate that had the sale of one of the lots proceeded the plaintiffs’ financial plight would not have been where it is at the present time.

[27]     It is often difficult at an early stage of a proceeding, to form more than a preliminary view on the merits of a cause of action.  What my consideration of the facts so far presented indicates, however, is that there appears to be at least some foundation for the cause of action pleaded in equitable estoppel.

[28]     There is another aspect to this case which places it in a different position to most cases where the court is required to determine a security for costs application.

[29]     The first prayer for relief anticipates a counterclaim by the defendant.  The counterclaim would be expected to claim the amount due under the two loans which, in February 2010 on the defendant’s evidence, showed a sum due of $182,421.

[30]     When I raised this question with Mr Hikaka he informed me that his firm had instructions  to  defend  this  proceeding.    He  advised  that  another  firm  had  been

instructed by the defendant in relation to recovery of the sums due under the two loans.

[31]     I put to Mr Hikaka that it would be an abuse of process if the defendant bank were to instigate a second proceeding seeking recovery of the amounts due under the loans from the plaintiffs in view of the way this case had been pleaded by the plaintiffs.  That abuse would follow from the rule in Henderson v Henderson[4] where the rule was expressed as follows:

Where  a  given  matter  becomes  the  subject  of  litigation  in,  and  of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of the matter which might have been brought  forward  as  part  of  the  subject  and  contest,  but  which  was  not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case.  The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of the litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.

[4] Henderson v Henderson [1843-60] All ER Rep 378; (1843) 67 ER 313; (1843) 3 Hare 100 at 114-115.

[32]     If a counterclaim were to be filed in this proceeding seeking recovery of the sums due under the loan agreements that would have a significant bearing on the exercise of discretion of whether security for costs should be ordered.   It is particularly so in this case because the counterclaim, which necessarily deals with the essential issue involved in this case, would clearly be, in effect, a defence to the

plaintiffs’  claim:  Onop  Properties  Ltd  v  Fallon  Properties  Ltd,[5]   Ansell  v  State

Insurance Ltd.[6]

[5] Onop Properties Ltd v Fallon Properties Ltd (1988) 1 PRNZ 261.

[6] Ansell v State Insurance Ltd 10 PRNZ 133.

[33]     The difficulty for me in this case is that the counterclaim has not yet been filed.  Further, it may not even be filed if the mortgagee sale proceedings, which I was told were being taken, effect sufficient recovery to discharge the indebtedness. What I was told was that that position was most unlikely and that there would certainly  be  a  shortfall.    Faced  with  this  position,  two  options  appear  to  me

appropriate.   The first was to dismiss the application but subject to leave being granted to the defendant, pursuant to r 7.52, to bring a second application in the event that the court could be assured by the defendant that no counterclaim would be advanced seeking payment of sums due under the loans.   The second option is to issue this as an interim judgment, indicating that a further hearing could be sought by the parties when the position in relation to a counterclaim seeking repayment of the moneys allegedly due under the loans was formulated and filed and served.

[34]     I raised with counsel the concerns and the options which I considered were available to me in the course of the hearing.   Both counsel submitted that the appropriate  course  was  for  me  to  issue  an  interim  decision  if  I  came  to  the conclusion I have just recorded and to set a conference date by which time it was anticipated that the defendant’s position in relation to a potential counterclaim could be clarified and also issues relating to discovery resolved.  I am persuaded that that is the most effective way of dealing with this case.

Orders

[35]     To reflect the conclusions I have reached I order as follows:

a)       The application is adjourned for a telephone conference with counsel for the purpose of giving further directions for the conclusion of the hearing of this application at 12:20pm on 13 July 2010;

b)At that conference the defendant’s counsel will be expected to have either filed a counterclaim, or advised when same is anticipated to be ready for filing, or to confirm that a counterclaim will not be filed;

c)       The plaintiffs’, at the conference, will be expected to advise if there are any outstanding issues relating to discovery which are unresolved and, if so, precisely what they are;

d)In the event that no further pleading is to be filed by the defendant, counsel will be expected to advise if a calculation of the anticipated

costs  in  this  proceeding,  which  is  set  out  in  paragraph  38  of Mr Hikaka’s  memorandum  for  this  hearing,  of  25 May  2010  is challenged and, if so, in what respects;

e)       Counsel are encouraged to confer and, if agreement is reached, to file a joint memorandum.  In the event that there is no agreement, counsel for the defendant shall file and serve a memorandum covering the matters referred to in these orders four working days before the conference.    Counsel  for  the  plaintiffs  shall  file  a  memorandum dealing with these matters and, in particular, responding to the matters set out in counsel for the defendant’s memorandum two working days before the conference; and

f)        Costs in relation to the application are reserved.

JA Faire

Associate Judge